There is no obituary column or funeral for dead companies. A business can exist for years, decades, and even a century or more. Then one day it closes, everyone is fired, all the assets are sold off, and life goes on. Once in a while people talk about a plant closing or a long-gone retail store, but rarely do they take time to study what happened. In medical school, cadavers are used to teach future doctors. They dissect them piece by piece, studying what brought about their ultimate demise. And, in life, when someone close to us dies, we continue the grieving process by reminiscing about that lost life. We talk over and over about the good things and the bad things. We don’t just bury them and never mention them again. Life carries on, but we try to make sense of life and the loss by examining it.
As human beings, as souls, we have learned over thousands of years that the closer we come to death the more we appreciate life. The entire process of being vulnerable and fragile is part of being alive. We fall, we get hurt, we go to doctors and hospitals, we have surgery, we take medicine, and despite our best efforts, we eventually die. It’s messy, frustrating, heartbreaking, and painful, but we still need to see it, talk about it, and learn from it. That analysis and learning will only make us stronger as people and as a community. All of this applies to a business, as well. Often, it’s the biggest living entity in a community.
We begin with the stark reality that, despite trying very hard, only a small percentage of all companies in crisis get saved. It’s somewhere less than 20%. In bankruptcy, which is designed to shelter assets, it’s even worse; less than 5% of all companies that file for Chapter 11 protection get to retain any equity at the outset of the case. These are staggering and oppressive numbers. The odds are always against us saving anything. With this in mind, I’ve learned to try to extend the life of a business and make the most of what I have in front of me. So, before I am the undertaker, I am often the hospice, and, just like hospice, the first introduction is a little off-putting until you get to know each other.
When I first walk into a severely troubled business I can smell death; it’s terrible and it’s inescapable. For years, I wondered if it was just me or if it was perhaps something spiritual. But after prolonged periods of living in crisis I realized it was an actual odor. It was stress. The senior managers and employees had been fighting and struggling and worrying for so long at such a high level of intensity that the stress was consuming them. After prolonged periods of extreme stress and crisis, your body chemistry changes. It’s hard to run from it. It is disturbing, but it’s a reality in the change from free-flowing life to the stagnation of death.
Not only do people change, but their environment changes as well. Divisions get closed, people get laid off, lunchrooms empty out, deliveries are less frequent, laughter is rare, and the hustle and vibrancy of a once thriving company is gone. The air gets heavy and starts to stink. It doesn’t feel good to be in a building filled with ghosts. Pictures are faded, team-sponsored trophies are dusty, holiday parties are canceled, and bonus checks are a distant memory. Worse still, troubled companies are often found in towns that are an hour from nowhere. The company is filled with the air of death, but so is its community. There are vacant lots, “for rent” signs, empty billboards, and a handful of businesses hanging on. No one wants to move to these towns. Certainly no one wants to go work for a troubled company. The feeling of failure, isolation, and resignation to death permeates all levels in and around this business: the wrong industry, wrong technology, wrong location, too much debt, not enough revenue. Many times, it is dead and gone before I even get there.
Still, even in these situations, there is a way to find something positive. There is always a way to find a way to maximize the most from the assets and revenue that remain within the company. There is no formula for this type of situation. Every company is unique. Some situations require an immediate scale-back of 90% of all overhead while others require a well-orchestrated, orderly wind-down over a period of time. You have to be creative while being fully aware of all of the creditors’ rights and interests. You have to accept that the business as it was is gone. Next you need to find a path to help pay back as many of the debts as possible.
As a crisis manager, I spend a lot of time dealing with the concept of “letting go.” Helping people let go of their identities, titles, possessions, their status, their communities. Are all forms of death. When a person loses their job because a company is closing, all of these deaths accumulate within them and around them. As the senior manager, I am responsible for initiating all of that loss. I may not have created the situation, but it is my responsibility to resolve it, good or bad. The worst days were when we had to do mass layoffs or, in some cases, shut the entire company down abruptly. These were painful, miserable days. Only a soulless person could excuse themselves from the devastation that was being caused across thousands of lives that intermingled with this one, formerly living company. Every stakeholder, in and outside of the company, would feel some level of pain, despair, anger, and grief when a major division, plant, or the entire company was closed—including their families. Life would change for these thousands of people in an instant. All of that suffering would be brought into their homes and, in that instant, their family dynamics would change as well. Corporate genocide is real. When companies close, a ripple of death runs through entire communities.
And what happens to all of the debt when a company can’t repay it? It goes away. On paper and in courtrooms, it’s just erased. However, the real effect is that thousands of other peoples’ lives are affected every time a line of debt is erased. That debt represents hours and material spent making a product or delivering a service. Somewhere along the line, others paid for that line of debt. When it’s gone, they pay for it again. Their business will be affected. Someone may lose their job. If they get strapped, then their debts can’t get paid, and so on and so forth.
Bankruptcy was created to protect creditors. It is a legal vehicle to stop the further decline of a business and shelter the remaining assets. A Chapter 11 filing is called “Debtor in Possession.” It gives the appearance that the debtor is in control and has time to restructure the company so that he or she can pay off the company’s debts. The reality is the debtor still has legal authority over his or her company but he or she is not in control.
The senior lenders or senior creditors have all of the power and control. They are generally the ones who force a Chapter 11 filing. They do this as a vehicle to collect their debt. They are first in line; they see a declining situation, so they say, “We need a time-out and a plan to get us back our money.” In general, this means there is a sale of those assets where the senior lender gets all or most of their money repaid. Rarely is there any money for all of the unsecured creditors. The unsecured pool is mostly hundreds—sometimes thousands—of suppliers to the company. They are left hunting for scraps that, if found, are eaten up by lawyers’ and consultants’ fees.
Bankruptcy does help save some value and protect some jobs. However, having seen both in-court restructurings and out-of-court restructurings, my preference is to stay out of the legal system. If you can find reasonable people and you can work quickly, more money will be distributed to all creditors along the food chain. Once a company files with the court, a great portion of the money that could be used to fix the company gets used up in professional fees. Lawyers, accountants, consultants, and court administrators all stand in line before unsecured creditors.
Having experienced all of this waste, I learned how to keep a company alive and limping along for an extended period. Why? To stave off death. My belief is that if money is coming into the front door, it shouldn’t be closed. I believe in keeping the company open as long as there is positive cash flow, even if there are massive debts that have been accumulated. Each day a company has positive cash flow is another opportunity to help pay off creditors. Many times, those creditors are hundreds of other small businesses. They sold a product or service, and now they just want to be paid. Every dollar counts.
And, as long as the company is limping along, people remain employed. A paycheck is a paycheck. Keeping the doors open keeps money flowing to some employees and gives them time to look for a new job.
When a company finally does reach its end, you close the doors and try to sell off everything conceivable. Even in death, there can be value in a business.
One year into the Great Recession, I was hired to help a regional retailer that was owned in a trust by all of the employees. The company needed to hire me after they received a letter from its bank stating that they would not be renewing the credit line to them in the coming year. It was the fall of 2009. Most of the banks had taken significant write-downs in their portfolio. The troubled loans departments in all of the banks across the country were overwhelmed with problem companies. Credit had tightened. So, when they could easily get out of a situation, they did.
This retailer sold school supplies to elementary and high school teachers. It was a seasonal industry; once a year they needed to draw heavily on a credit line to build up their inventory when teachers prepared for the beginning of the school year. Without a credit line, they would have to shut the doors.
The company had been in business for more than 40 years. It was two weeks before Thanksgiving and despite this horrible news from the bank, I refused to lay off a few hundred people before the holidays. Life was hard enough without having to go into the holidays without a paycheck, health insurance, or even prospects for a new job.
We conducted a quick assessment and concluded that the company was a financial and operational disaster. Even if we could fix everything internally, external challenges were even more difficult to resolve. Competitors in the same industry had far surpassed this company in terms of product offering and service. As such it was very difficult to construct a turnaround plan without a significant injection of cash and talent. I knew that we could eventually find better managers, but getting a new bank or new investor would be virtually impossible. These were significant obstacles but that didn’t mean we were dead in the water. I knew there had to be another option. We might not be able to turn it around but maybe we could offer some form of corporate hospice.
Sam, the CEO of this retailer, was a handful. He managed to do almost everything wrong and make almost everyone he met angry at him. He turned an $80M retail school supply company into a $20M company in less than five years. Sales, marketing, finance, operations, employee morale, and customer relations were all suffering terribly. There were 270 employees still hanging on. They were miserable, but they needed the job. There was nowhere else to turn in the middle of the harsh economic environment.
The CEO had done many things wrong, but he managed to do one thing right; he paid his suppliers on time. For some reason, he was very efficient at paying all of his suppliers within 30 days. For us, this was an opportunity to generate some cash. We concluded that if we could convince all of the major suppliers to give us 60 days to pay our bills, we could have enough cash flow to finance us for an extended period of time. We put together a 13-week cash flow with this premise and with other operational improvements as assumptions, and we showed it was possible to survive without a new credit line from the bank. There would be weeks that we would have less than $200 in the bank account, but in my eyes, it was more than zero, so it worked. The pitch to suppliers was simple: “If you give us 30 more days to pay, you will still have a customer. If not, we’re out of business in a couple days.”
The majority of suppliers signed on. They became our credit line. At the same time, we put in place a couple of dozen changes at every level. We were able to keep this company alive and hundreds of employees working for another 10 months. Ten months without a bank. Ten months that kept millions moving through the economy and giving many people a little more wind to get their next job. It wasn’t perfect but many times, it doesn’t have to be; you just try to stay alive as long as you can.
Of course, as in life, not all deaths are similar. Not all die peacefully in their sleep; many go out kicking and screaming, and a few try to take as much as they can with them to the other side. In these situations, there is no ambiguity in my role. I am the heavy. I am there solely to protect assets. In these cases, most of the employees are gone and the business is finished. It’s just about minimizing the damage that was already caused.
In one particular instance, a bank in NYC was struggling with a complicated loan. They had made a loan to a movie storage business. The bank’s lawyers told them not to take the movies as collateral because if they were damaged or went missing, it could cost them much more than the actual loan. This business stored thousands of movies underground in cold storage. They stored safety videos for automotive companies and they also stored movies for all of the big Hollywood production companies. This storage facility also did movie restoration. It housed some very high-profile movies. Most notably, Martin Scorsese had a movie restored here. So, in an effort to avoid greater liability, the bank only took the account receivables as collateral.
This company was now in bankruptcy. A forensic accountant for the bank had determined that the $10M of receivables listed on the balance sheet were only worth $800k. It was his conclusion that the owner, Jack, had created a work of fiction with this balance sheet. In some cases, customers owed him money and he would cut side deals with them. They would do work for him on other projects or investments and he would extinguish their debt, which would have been fine except for the fact that Jack never removed the debt from the books. Instead, he represented it to the bank as perfectly collectible receivables. In other instances, Jack just made up the customers. They didn’t exist. He just wrote in a number for the receivable.
The bank had been defrauded and now they were trying to minimize their write-off. However, after months of trying to collect the debt in a bankruptcy proceeding, not one penny had been recouped. Jack made it as difficult as possible for them to return the movies to customers, so they couldn’t collect the receivables. The bank was terrified to have a trustee appointed to the case or to have any representative handle the movies. Their lawyers kept advising them that the liability was still too great. Word had spread that some employees had stolen movies in lieu of receiving their last paycheck so there was also an expectation that someone would have to pay for these missing movies.
Jack, like many criminals, knew how to exploit weaknesses and insecurities. For months he had been lying, manipulating, and threatening everyone in the case. A judge typically would not tolerate this behavior, but Jack was a great manipulator. He kept providing perfect excuses for not returning any movies. He fired the storage managers and told the judge they were stealing. He also fired his entire IT department and told the judge that the system was broken. Systemically, he fired everyone so that he was the only person who could do anything. Then he told the judge that it was just too much for him to do but he had no choice because everyone else was untrustworthy.
The banker in NYC had kept me apprised of what was happening. It was early in my career. I had only been in the crisis management industry a couple years but I knew this was the wrong approach. All along I had told him to ignore the lawyers and just get in there and ship the movies back to customers. I told him that Jack was playing games hoping to exhaust everyone so that he could hold on to his company. He hoped that people would get tired and walk away from their debts. He also knew that once the movies were returned, he would possibly be facing a criminal trial. After five months of inaction, the banker finally decided to hire me.
The company was located a couple of hours away from my principal office in the Midwest. When I arrived at our scheduled 8 a.m. meeting, there was a big, empty gravel parking lot that was large enough to fit 200 cars. There was only one car in the lot at the time, however, and I parked next to it. I walked into a large, old building that was dark and smelled damp and stale. There was no one within sight. I began walking down the hallway when a portly man came out of a room. He smiled and said, “Oh, hi. I’m Jack. Follow me.”
I followed him into an adjacent meeting room with a table big enough to seat 12 people. In the middle of the table was a large tray of fresh donuts and a pot of freshly brewed coffee. I thought that was interesting—it was certainly hospitable. I wondered if others would be joining us. Jack offered me a donut and coffee. I took coffee but declined the donut; I didn’t want glaze or powder on my chin for this conversation. Jack sat at the head of the table and I sat in the middle along one side. Before I could take my first sip he started a prologue.
“Thank you for coming but the bank is really wasting your time and my time, and quite frankly, my money and their money. I don’t know why you are here. There’s nothing that you can do and nothing that I can do. The bank knows this. I’ve explained everything to the court. Everyone knows this. So, I think you should just go.”
I found this amusing. I smiled and said, “Sure, Jack. I understand. I don’t want to waste your time or money. I just need the inventory list and then I can go.”
His tone and demeanor changed quickly. He was no longer the jovial host with donuts. He started to channel Archie Bunker.
“Boy, you really are some kind of idiot. I thought the bank was sending someone smart but you’re an absolute moron. I’m going to call them and tell them not to pay you. You’re just a fucking idiot. There is no list. I told you; the entire system is down and there’s no way to get it until it’s fixed. Now, will you just get out of here?”
I smiled again and said, “Jack, I just need the list. I know there’s an inventory list somewhere. I’ll even take an old one. I’m certain it hasn’t changed much. I don’t need a system or a disc. I just need a paper copy.”
He stared at me with dark pupils and started turning purple. He turned around and moved his suit jacket off the back of his chair. I saw a gun in a holster hanging on the chair. He pulled out the gun, pointed it at me, and said, “I told you to go. So go.”
I knew I was outmatched, and I knew he was desperate and clearly crazy. I also knew that there was no one else around to even hear a gunshot. I stood up slowly and said, “No problem, Jack. I’m going. Sorry to bother you. Thanks for the coffee.”
I walked out hoping I wouldn’t be shot in the back. But by the time I got into my car and got to the end of the parking lot, I was angry. It was October 2001. It was six weeks after 9/11. The wounds and trauma from that horrible event were still fresh. I had many friends and a close cousin who had worked in the towers and financial district. The previous two years, I had travelled to NYC approximately once a month. Routinely, I had meetings with bankers or lawyers in and around the towers. I had just been there in August. In the financial industry, all of us knew someone who had perished in that heinous attack.
Like many, at times, I felt powerless at the sight of those buildings falling. The image constantly replayed in my mind like a nightmare I couldn’t shake. It surprised me. It stunned me. And now I wanted to do something about it. I couldn’t fight terrorists but I could certainly fight this degenerate scumbag who had just pulled a gun on me. I had had enough of criminals bullying people. This time, the bad guy wasn’t going to get away with the crime.
I called the banker in NYC and told him what had happened. He was mortified and apologized incessantly. I told him, “No, really—it’s fine. I’m going back in there. I will get you your money.” He thought that I was suffering from shock. He couldn’t believe that I wanted to go back in after a guy had just pointed a gun at me. I told him, “No problem. Let me take care of everything. You just call his lawyer and tell him that we want to meet again tomorrow at 8 a.m.”
I met with the bank’s lawyers and asked them for help in hiring an off-duty cop to come with us to the meeting. I also requested an additional colleague of mine to attend as well as the forensic accountant.
The next morning, I stood in the parking lot waiting for the others. A white sedan with completely blacked out windows raced through the gravel kicking up dust. As the car neared, I read the license plate: “No Bail.” The car parked and out came a guy, 6’2”, brush cut, wearing gold-tinted sunglasses, tight jeans, and a black polo shirt, and holstering a 9mm on his right hip. I thought to myself, Perfect.
The off-duty police officer asked, “Sir, what would you like me to do today?”
I nodded my head and said, “You stand right next to me at all times. If the portly, bald, sweaty guy so much as threatens or tries to harm me, put a bullet in the middle of his head.”
Without missing a beat or asking for clarification, the cop said, “Yes, sir.”
We entered the room with the others. Again, there was a generous tray of donuts and a pot of freshly brewed coffee. Seated around the table was the forensic accountant, my colleague, the bank’s lawyer, Jack’s lawyer, and Jack, once again at the head of the table with the same suit jacket draped over his chair.
His lawyer immediately asked, “What’s with the heat?”
“As you are well aware,” I replied, “your client pulled a gun on me yesterday. I think that he is unstable and dangerous. So long as he behaves today, he won’t be killed.” Of course, being a criminal, Jack denied the entire incident because there were no witnesses.
His lawyer then said, “I think this is all an over-reaction. Jack is a good person. We can have the police officer wait in the other room.”
I smiled and said, “No, thanks. He’ll stand right next to me until we get the inventory list.”
As soon as I said the word “list,” blood started to rush into Jack’s face. It was at this point that he started to call me different names. Somehow, he forgot my name from the day before.
“Fernando, I explained to you yesterday that there is no list, and none could be generated.”
I’m not sure why he called me Fernando, but I didn’t want to correct him. My intent was to make him explode even worse than the day before. I was either going to get the list or get him permanently removed from the premises by showing everyone what a lunatic he was. I hadn’t shared my plan with anyone else, though. I needed authenticity for what came next.
I said, “Well, Jack. I don’t know. I think there’s a difference of opinion. I think we should review the forensic accountant’s report and then get everyone’s thoughts.”
Jack steamed. I knew that the only thing worse than wasting his time would be wasting his money. I also knew that the cost of the bankruptcy was being shared between him and the bank. As assets were liquidated, his half would go to pay all of the costs. So, when I filled this room with people, I knew that Jack would be counting the dollars. Everyone but him was on an hourly rate, including the cop giving him a death stare. As the accountant spoke, Jack became restless. Everyone had heard this report; he would wonder why it was being read again.
Suddenly, Jack jumped in. “This is ridiculous. Why are we doing this? Everyone should just go home.”
I said, “We’d love to, Jack, as soon as we get the list. I know there’s a list somewhere. How did you run a business without an inventory list? I thought this was a good business. Good businesses know where their inventory is.”
And there it was. Just as I expected, Jack blew up. He turned purple, smashed both of his fists on the table, stood up, pointed his finger at me, and started to spew, “You’re an imbecile. You’re an absolute fucking idiot. You have no idea what you’re doing. You’re a piece of shit. Get the fuck out of my building.” Then, he took his own advice and stormed out of the room. I looked around the room at the others as if to say, “I told you so.” His lawyer went after him and he too left the room. After 10 minutes, Jack calmed down and returned to the table.
Everyone looked at me for the next step. His lawyer asked, “What’s your next question?”
I lowered my head, softened my voice, and replied, “I would like an apology.”
My lawyer turned to me and shrugged his shoulders, and Jack’s lawyer asked, “For what?”
“For calling me names and using profanity. That’s not nice. I’ve been polite and professional. Why can’t he be the same?”
“His lawyer looked at me and said, “You’ve got to be kidding me. Grow some thick skin.”
I replied, “Would you talk like this to the judge? Maybe we should have this meeting in the courtroom. I’m asking for the same level of discourse that we would have there.”
Sincerely, I couldn’t have cared less what he called me. I had been called much worse. I just wanted to change the pace so I could make him my personal squeeze box. In and out, in and out. I knew eventually, he’d bust.
Everyone nodded and then understood that it was a reasonable request. Jack sheepishly said, “I’m sorry for yelling, Ferdinand.”
Amused that he had changed my name again, I replied, “That’s okay, Jack. I know you mean well…So, let’s resume. Where’s the list?”
In a flash, his face turned purple, both fists slammed the table, and he proceeded to call me and my family all kinds of awful things. He laced a three-minute rant with rancid profanity. Then he stormed out of the room again. This went on for two hours: swearing, storming out, and then apologizing to Fernando or Ferdinand.
I was intent on keeping everyone there all day, so I kept asking question after question about the inventory. At one point, he stood up and began pointing his finger at me and yelling, “You idiot. You stupid fucking idiot. Why would the bank pay you $250 an hour? You’re shit. You’re not worth a dime. Stop wasting my money. Please go home.”
I waited until he sat back down. Then I took a long pause, lowered my voice, and with a tinge of sheepishness I said, “Umm, Jack? I don’t make $250 an hour.”
Jack looked at me in confusion.
I continued, “My colleague makes $250 an hour. I make $300.”
I think that one finally sent him over the edge. He wanted to kill me. No words came out of his mouth. He just turned purple and smashed the table with both fists four times. Bang, bang, bang, bang! Then at the top of his lungs he yelled “FUCKER!” And, once again, he stormed out of the room.
I am convinced that had I not had the police officer there, he would have come after me with his gun.
As we approached the third hour, I asked for a tour of the facility. As we toured the warehouse I saw numbers at the end of each aisle, similar to numbers at the library. I pointed to these numbers and asked, “Jack, what are these?”
He rolled his eyes and said, “Boy, you really are stupid. You don’t know the first thing about business. You moron. The numbers are for the list so we can find the movies when a customer asks for them. You idiot.”
Bingo. Had what I needed.
I looked at his lawyer and said, “He just admitted that there’s a list in front of all of these people. Go get it or we call the judge right now.” Jack was devastated but his lawyer compelled him to comply. The list showed up in 10 minutes.
Jack’s shenanigans didn’t end there.
About a week later, on the first day that we tried to ship out product, Jack decided to lay down in front of the delivery truck in the driveway. I was not on site but my colleague was. Not knowing what to do, he called me in a panic.
I told him to walk over to Jack, put the phone near him, and put it on speakerphone. He walked over, and the truck driver joined him. They stood by Jack, holding the phone so he could hear it. I then yelled into the phone, “RUN HIM OVER.”
My colleague was stunned. He asked, “What? Are you crazy?”
I then yelled, “MAKE HIS BIG PURPLE HEAD PART OF THE PAVEMENT,” and I hung up.
Apparently, the truck driver smiled and got back into his truck and revved up the engine. He too hated Jack.
I was determined to show Jack that I would go further than he ever would. It didn’t take him long after that call to make him move out of the way.
Shortly thereafter he wrote a 27-page letter to the judge complaining that Ferdinand and Fernando were destroying his business. It took the judge a while to figure out that I was the “Spanish Destroyer.”